Comprehensive exercise with purchases discountsThe Little Black Dress Shop (TLBDS) started...

Comprehensive exercise with purchases discounts

The Little Black Dress Shop (TLBDS) started the 2011 accounting period with the balances given in the financial statements model shown below. During 2011 TLBDS experienced the following business events.

1. Purchased $32,000 of merchandise inventory on account, terms 2/10, n/30.

2. The goods that were purchased in Event 1 were delivered FOB shipping point. Freight costs of $1,200 were paid in cash by the responsible party.

3. Returned $1,000 of goods purchased in Event 1.

4a. Recorded the cash discount on the goods purchased in Event 1.

4b. Paid the balance due on the account payable within the discount period.

5a. Recognized $42,000 of cash revenue from the sale of merchandise.

5b. Recognized $30,000 of cost of goods sold.

6. The merchandise in Event 5a was sold to customers FOB destination. Freight costs of $ 1,900 were paid in cash by the responsible party.

7. Paid cash of $8,000 for selling and administrative expenses.

8. Sold the land for $11,200 cash.

Required

a. Record the above transactions in a financial statements model like the one shown below.

b. Prepare a multistep income statement. Include common size percentages on the income statement.

c. TLBDS’s gross margin percentage in 2010 was 34%. Based on the common size data in the income statement, did TLBDS raise or lower its prices in 2011?

d. Assuming a 5 percent rate of growth, what is the amount of net income expected for 2012?